Plaintiff 1 and one other

Head of the High Tax Office

March 31, 2016

Suwon District Court Decision 2014Gudan463 Decided September 23, 2015

1. All appeals filed by the plaintiffs are dismissed.

2. The costs of appeal are assessed against the Plaintiffs.

The judgment of the first instance shall be revoked. Each disposition of the Defendant imposed capital gains tax of KRW 2,55,112,530 (including additional taxes) for the transfer income tax of KRW 2,55,112,530 (including additional taxes) for the year 2012 owed to Plaintiff 1 on August 1, 2013 and capital gains tax of KRW 1,974,393,680 for the year 2012, shall be revoked.

1. Partial citement of judgment of the first instance;

The reasoning of the judgment of this court is as follows, with the exception of “(a) the Plaintiffs’ assertion, (b) the Defendant’s assertion, (c) the pertinent part of the reasoning of the judgment of the first instance (Articles 4 through 8)” from “1. The grounds of the judgment of this court” to “2. The legality of the disposition”, and thus, it is cited in accordance with Article 8(2) of the Administrative Litigation Act and the main text of Article 420 of the Civil Procedure Act.

○ The second page 13 applied gift tax exemption, “The gift tax exemption was exempted”.

○ 3rd page 18 is "....... the agricultural partnership as a collaborative agricultural business entity shall apply the provisions of the Civil Act concerning the partnership as an agricultural business entity and shall not be recognized as an independent entity in relation to a third party."

2. Determination

A. In light of the principle of no taxation without law, the interpretation of tax laws and regulations shall be interpreted in accordance with the text of the law, barring any special circumstance, and shall not be extensively interpreted or analogically interpreted without reasonable grounds. In particular, the strict interpretation of the provisions that can be seen as clearly preferential provisions among the requirements for reduction and exemption accords with the principle of fair taxation (see, e.g., Supreme Court Decisions 2008Du7830, Oct. 23, 2008; 2008Du11372, Aug. 20, 2009).

According to Article 68(2) of the former Restriction of Special Taxation Act (wholly amended by Act No. 11614, Jan. 1, 2013; hereinafter “former Act”), where a farmer prescribed by Presidential Decree makes an investment in kind in an agricultural company (limited to cases meeting the requirements of an agricultural corporation under the Farmland Act) with farmland or grassland on or before December 31, 2012, capital gains tax on income accruing from the investment in kind is exempted.

In addition, Article 63(4) of the former Enforcement Decree of the Restriction of Special Taxation Act (wholly amended by Presidential Decree No. 24271, Dec. 28, 2012; hereinafter “former Enforcement Decree”), “farmer as prescribed by Presidential Decree” means a farmer under Article 3 subparag. 2(a) of the Framework Act on Agriculture and Fisheries, Rural Community, and Food Industry, who directly cultivated a farmland, grassland, or real estate (hereafter in this Article “farmland, etc.”) that is invested in kind as a farmer under Article 3 subparag. 2(a) of the Framework Act on Agriculture and Fisheries, Rural Community, and Food Industry, and a Si/Gun/Gu (referring to an autonomous Gu; hereafter in this Article the same shall apply), adjacent Si/Gun/Gu, or the pertinent farmland, etc., within a 20-meter radius, and there is no separate definition provision

Meanwhile, Article 69 of the former Act provides for the reduction or exemption of capital gains tax on self-arable farmland. Paragraph (1) provides that a resident who resides in the seat of farmland and who is prescribed by Presidential Decree directly cultivates the land prescribed by Presidential Decree for at least eight years shall be exempted from the tax amount equivalent to 100/100 of capital gains tax on the income accruing from the transfer of the land prescribed by Presidential Decree. Article 66(13) of the former Enforcement Decree of the Act provides that "direct farming" means that a resident is engaged in cultivating crops or growing perennial plants on his/her own land at all times or cultivating or cultivating them with his/her own labor.

In addition, Article 2 subparagraph 5 of the Farmland Act (amended by Act No. 4817, Dec. 22, 1994; hereafter the same in its contents to the present date) provides that "a farmer is engaged in cultivating crops or growing perennial plants in his/her own farmland or growing or growing at least half of farming works with his/her own labor, or an agricultural corporate body cultivates crops or growing perennial plants in its own farmland." Article 4 of the Enforcement Rule of the Farmland Act provides that "a farmer cultivates crops or cultivates perennial plants by cultivating crops or growing perennial plants by more than half of his/her own labor" as one of the cases where a farmer is engaged in regular engagement under Article 2 subparagraph 5 of the Farmland Act.

Examining the language and text of each of the above provisions, the former Act, the Enforcement Decree of the Farmland Act, etc. in light of the legal principles as seen earlier, “direct farming” under Article 63(4) of the former Enforcement Decree of the Act should be deemed to fall under the case where a farmer cultivates crops or cultivates perennial plants by more than a half of the labor force.

B. Meanwhile, the burden of proof as to the requirements for exemption of capital gains tax under each of the above provisions shall be deemed to be the person liable for tax payment who asserts the grounds for exemption. As seen earlier, the plaintiffs can only be acknowledged to have cultivated natives in the name of the representative director and the full-time director of the local farming cooperative, and engaged in manufacturing and selling sos. Such circumstances and the evidence submitted by the plaintiffs alone are insufficient to recognize that the plaintiffs actually cultivated crops or cultivated perennial plants by more than 1/2 of their labor force in the farmland in this case owned by them, and there is no other evidence to acknowledge otherwise.

Ultimately, the Plaintiffs did not meet the requirements for “direct farming” under Article 63(4) of the former Enforcement Decree of the Act, and do not fall under “farmer” under Article 68(2) of the former Act, and thus, the instant farmland does not apply to capital gains tax exemption provisions following investment in kind in an agricultural corporation.

The defendant's disposition of this case is just, and the plaintiffs' assertion is without merit.

3. Conclusion

Since the judgment of the first instance is justifiable, the plaintiffs' appeal is dismissed in entirety due to the lack of grounds.

Judges Cho Jong-sung (Presiding Judge)